By Jamie O’Toole
The herds may be historically small but cattle prices have continued to grow reaching an all-time high at the start of 2014. The impact of the price change has altered the world of beef from the pasture to the plate.
The high cattle prices are the result of heavy droughts, which depleted cattle herds to sizes that have not been seen since the 1950s. Fields dried up, no longer able to sustain large herds, and feed prices shot up causing ranchers to sell off larger numbers of cattle to compensate for the increased cost of raising livestock. The shortage in the cattle supply paired with the strong demand for beef has driven up prices to record highs exceeding $1000 a head.
Higher cattle prices equal bigger paychecks for producers, right? Not necessarily. The answer is not so straight forward.
“The beef industry is enjoying the best cattle prices we have had in years or possibly ever,” says Cattle Manager Steve Densmore of Circle X Land and Cattle Co. Ltd., a local producer of Brangus cattle. “But the price of everything that is associated with raising beef is also rising.”
Unfortunately for those in the cattle business, high prices for their product have been simultaneous with an increase in operating costs. Ranchers are paying elevated prices for land, fuel, and feed, all elements necessary for rearing livestock. While business requires a careful balance of expenses and income, most producers are turning a greater profit than in years past.
Prices may be good for producers now, but there is the ever-looming question of the market’s future. If cattle prices remain high or continue to increase, how will the industry react?
Densmore and CFO Bruce Fleming of AzTx Cattle Co., an independent cattle feeding company operating out of Hereford, both offered evidence that prices will remain high over the next few years as the cattle supply stays low and people continue to demand beef. While some ranchers will begin to rebuild their herds, it is a timely process that will take multiple years under the right conditions. In order to restock, heifers will have to be withheld from market and bred, meaning an even lower supply in the short run. As long as the demand for beef, which has grown internationally in recent years, is maintained prices will stay strong.
Densmore says that the possibility for expansion in the industry is present under the current conditions, but Fleming says it is unlikely the number of producers will increase significantly. The average cattle producer is in his late 50s and those who were driven from the industry may be reluctant to reenter with retirement right around the corner. New entrants are even less likely with land prices and other related operating costs higher than ever.
“Entry into the cattle business or expansion of existing herds cost more today than at any time in history,” explains Fleming.
For those looking to enjoy a juicy burger or tender steak, record prices for cattle bring record prices for beef, which have recently soared to more than $200 per hundredweight.
Restaurant owners are feeling the pressure of the price peak, faced with the challenge of creating dishes that satisfy the customers’ wallet as well as their pallet and still turn a profit.
“The price of beef went up by 20 percent in 2013 and now it has gone up another 15 percent in January alone,” says Tai Lee, executive chef and owner of both Veritas Wine and Bistro and Chef Tai’s Mobile Gourmet Food Truck. “It is hurting our bottom line for sure.”
Lee uses a combination of both domestic and imported beef, featuring a high-grade Wagyu beef imported from Australia for his food truck’s A.P. Wagyu Burger and his restaurant’s Wagyu Steak dish and American Wagyu Burger Au Poivre. Aside from specialty dishes, he generally uses domestic beef and has already had to adjust steak prices on his menu due to the dramatic price increase.
Wade Barkman, executive chef and owner of the local whiskey and steak bar The Republic, uses only local beef sourced from Bryan’s Ruffino Meat and Food Services. While Barkman has definitely seen beef prices rise, especially since he first opened his restaurant nearly seven years ago, he is committed to not pass along the increase to his customers.
“The price increase doesn’t really change our pricing,” says Barkman. “If I have to take a loss or am a little less profitable on some dishes, that’s just part of business.”
Will beef maintain its status as America’s protein of choice if price increases don’t slow down?
Fleming predicts people will continue to buy beef possibly choosing a lower grade or cheaper cuts than they otherwise would to fit their price range. Densmore speculates that some people will opt for chicken or pork as a replacement protein.
Fleming remains confident in beef’s popularity. “There will be some beef demand lost to competing meats such as chicken, but beef will remain as the protein of choice,” he says. “Everyone loves a good steak!”